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European Commission opens consultation on new state aid rules for airports and airlines

Public financing of airports and airlines by national and regional governments is currently assessed under the 1994 and 2005 Community Guidelines on State Aid in the aviation sector. The new state aid rules ("New Rules") are intended to take into account the changes in the aviation industry in the last ten years and provides guidance on how Member States can support airports and airlines. The consultation on the New Rules is now open and comments should be sent to the European Commission ("Commission") by 25 September 2013. Following the consultation, the Commission intends to adopt revised Aviation Guidelines in early 2014.

Need for Change

The aim of the New Rules is to avoid the creation of overcapacities and duplication of unprofitable airports. The Commission is of the view that the density of regional airports in certain regions of the EU has led to substantial overcapacity of airport infrastructure relative to passenger demand and airline needs. The Commission also considers that public funds earmarked for supporting airport operations may be channeled to airlines in order to attract more commercial traffic, thereby distorting air transport markets. Further, the Commission believes that where aid is determined on the basis of ex post calculations, airports may not have much incentive to contain costs and charge airport fees that are sufficient to cover costs. The main provisions in the New Rules are provided in the sections below.

Investment in Airport Infrastructure

The New Rules would allow for State aid for investment in airport infrastructure on satisfaction of certain cumulative conditions. These inter-alia include (i) the achievement of a common object such as assisting in the combat of air traffic congestion at major European hub airports; (ii) absence of any other less distortive policy instrument; (iii) existing investment incentive without aid; and (iv) proportionality of permissible aid.

The New Rules establish maximum permissible aid intensities depending on the size of an airport. The Commission considers that airports with annual passenger traffic above 5 million are usually profitable and are to cover their operating and capital costs, hence no investment aid would be allowed. For airports with passenger traffic between 3-5 million, 1-3 million and < 1 million investment aid up to 25%, 50% and 75% respectively is permitted.

Operating Aid to Airports

Current rules do not permit operating aid to airports. The New Rules provide for a transitional period of 10 years during which such aid could be allowed. The Commission envisages that, at the end of the transitional period airports should cease to receive operational aid and should finance operations from own resources. Thus, managers of regional airports should seek to improve their finances through gradual increase of airport charges to airlines, introduction of rationalization measures by differentiation of business models or attracting new airlines and customers to fill idle capacity.

It is to be noted that the New Rules do not apply to aid for the provision of ground handling services regardless of whether they are provided by the airport itself, by an airline or by a supplier of ground handling services to third parties. Such aid will be assessed on the basis of the relevant general rules. Airports are required to keep separate accounts of its ground handling activities and should not subsidise its ground handling activities from the revenue it derives from its role as an airport manager.

Start-up Aid to Airlines

Public financing for airlines launching a new route or a new schedule, increasing the connectivity of a region would be permitted under the New Rules if certain cumulative conditions are fulfilled. These conditions inter-alia relate to capacity of the airport, long-term viability of the business plan, time period of aid and principles of non-discrimination.

The New Rules provide that public services obligation in relation to air transport services can only be granted in accordance with the conditions provided in the common rules for the operation of air services in the Community (Regulation 1008/2008). Public service obligations can only be imposed on a route to fulfill transport needs which cannot be adequately met by an existing air route or by other means of transport. Further, public service obligations can be imposed on a specific route or group of routes and not on any generic route originating from a given airport, city or region.

Comment

We understand there are over sixty pending State aid cases concerning regional airports with the Commission, of which operational aid is commonly a key issue. It remains to be seen the extent to which these cases will be able to benefit from the New Rules. In any event, after this ten year period, further operating aid to airports would be unlawful. The Commission is also likely to scrutinize more strictly whether State Aid granted to airports is being channeled to airlines.

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